Managing my manager - how to best approach maintenance requests

[Robert Zajac]

I need some advice on managing my property manager. Particularly when it comes to maintenance requests.

Some context: I own two small multi families in Cleveland and they are managed by a PM company (B2B property management). This company charges 15% on top of any maintenance requests in addition to their normal fees but all I need to do is approve the estimates - they do all the work/communication with the contractors.

Recently my PM sent me a few maintenance requests: a $1400 to fix some plumbing in a bathroom (clogged and leaking - contractor says they need to cut the pipes, reroute and replace some plumbing, recaulk. Etc) and another estimate for $800 for lead paint testing. And basically I’m just realizing I don’t know how to know if these are reasonable prices or not? They seem high. On one hand I don’t want to fall victim to overpriced contracts squeezing a naive owner. On the other hand I don’t want to be cheap and losing money in the long run bc I’m not properly fixing things. Does anyone have any resources or advice on how to know better about this? I’m mainly looking to educate myself for the long term.

I also am planning to meet with my PM on Monday to discuss pain points and better expectations, I would love to hear what sort of expectations you set with property managers? What you ask and expect of them (beyond the basics) and what expectations can I further establish?

[Nathan Gesner]

Quote from @Robert Zajac:

15% markup on maintenance is one of the highest I've heard of. Most property managers don't charge any markup. When a PM does charge a markup, he's usually getting a discount on the service to keep the cost stable. For example, my appliance store gives me a 10% discount, so I charge a 5% markup to my owners to make a little money and the owner still saves 5% from retail. I only charge markup on maintenance if it's a larger project that requires more coordination, supervision of the work, and inspection after completion. Examples include replacing a deck or renovating a kitchen. Lead paint testing requires no supervision or follow-up inspection. It takes a couple of calls to schedule, then they pay the invoice. That's not worth 15% of the job.

Another thing to consider is that some managers will charge low management fees and then add maintenance fees to bring in more income, while others charge high, all-inclusive management fees. You have to compare your expenses with each management style and find the option that works best for you. If you have a newer home that rarely requires maintenance, a markup fee and low management fees may be the way to go. If you have an older home that requires a lot of maintenance, you probably want to avoid the manager who charges a markup.

I recommend shopping around occasionally to see if your PM is procuring fair pricing or just marking you up to make money without justification.

As for expectations, you need to read the PM agreement and understand what is charged and why. If you don't understand something, ask the PM to explain. If they can't justify the charge immediately and specifically, then it's probably just a money grab.

Remember: lower fees don't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Try interviewing at least three managers.

1. Ask how many units they manage and how much experience they have. Feel free to inquire about their staff qualifications if it's a larger organization.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, a leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. A tenant complaining online might indicate that the property manager handled them appropriately, so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything possible to expose properties to the broadest possible market? Are their listings detailed with good-quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

[Drew Sygit]

@Robert Zajac pretty sure BRB charges less than an 8% management fee, so just as @Nathan Gesner states, they are making up for being below the "industry standards" by charging more elsewhere.

BE CAREFUL about PMCs that claim they don't charge a markup on maintenance - TIME IS ALWAYS MONEY!

We have a local competitor that brags they don't charge a maintenance markup, yet we know:

1) They charge owners $60/hour for their handyman
2) How much do you think they're paying their handyman? 
- Unlikely $60/hour
3) Even with all payroll taxes, insurance, etc., they are making a profit margin on that hourly charge.

Another way PMCs usually make a markup on maintenance, is that they send you all invoices on their letterhead, or from a maintenance company they actually own. You don't see any actual receipts for materials or invoices from contractors they hired. So, they can markup what they paid out and keep the difference.

Most PMC industry software has these two options built in.

So, it's just a matter of understanding how your PMC is marking up maintenance and not expecting it to be for free.

Regarding the specific charges you mentioned - there has to be some level of trust with your PMC. 

A lot of maintenance issues are repeated again and again on all the properties a PMC manages.
So, a PMC has pretty good idea of what many issues cost. YOU as the owner may not know, but the PMC does. So, why would they waste their time getting multiple bids when they already know the answer?

You also have to factor in time limitations.
How would you like to be a tenant waiting on a repair because the owner wants 3 bids for everything and not only will that delay the repairs, but you'll have 3 people coming through your home everytime you make a maintenance request?
How long will you go without hot water before withholding rent, calling the city or just moving out?

Contractor burnout is another concern.
Owners like to think it's so easy to just pick up the phone or send a mass email to get contractors beating down their door to give them a bid and hopefully get the job.
Doesn't work that way! The BEST contractors are in high demand, so are picky about doing bids and taking on jobs. A PMC can get a bad reputation really fast and be forced to use only the WORST contractors that are unreliable hacks. 

So, realistically, how much time do you expect a PMC to spend getting multiple bids?
Even if they could save 5-10% on that $800 bid, which is $40-$80, if it took more than 1-2 hours they'd be losing money doing it because their time is worth at least $40/hour.

In our opinion, it really depends on the level of urgency and the size of the bid.
The more urgency, like no hot water, the less time the PMC has to get multiple bids.
The bigger the bid, the more likely it is an owner should expect multiple bids.

An owner has to be realistic, understand and accept these limitations. 

[Adam Bartomeo]

15% on top of the normal month charge is a rip off. We charge 0% for this service. For, 15% I would expect several quotes with credentials. They have a HUGE incentive to do as much work to the property at the highest price. I would suggest either renegotiating the PMA or getting out of it.

[Jacob Gable]

@Robert Zajac like everyone else has said 15% markup is extremely high. I would suggest that you have them provide a few different quotes to price out the project. Then you can at least see if there is any major variance in pricing. Also just know the cheapest quote is not always the best. You want to use a contractor or repair man with a proven track record. 

[Michael Garofalo]

I agree with what everyone else has said, those figures seem extremely high. For what it's worth, I went through 5 different property managers in 2 different markets (one local, one out of state) over a period of 5 years, before deciding I would self-manage everything across both geographies beginning last year. I found similar patterns between all 5 companies: namely, they had taken on too many units, were over-charging me for things I didn't need, and weren't handling issues correctly (they would send out vendors who didn't know what they were doing, mis-diagnose issues etc.)

No disrespect to the PMs on this chain or BP in general, but any third-party manager won't perform exactly the way you would like them to simply because of the constraints they are faced with as far as having so many units and owners to keep tabs on. 

For me personally, it was worth making the switch because of how much money I stood to save and the flexibility to run things the way I saw best fit. Now if you have say 75+ doors and the economics make sense, you could hire someone on salary to be your dedicated property manager and specify exactly how you want things done, vendors to use etc.